Downs and Ups

Pakistan’s total debt and liabilities have increased from Rs 29.9 trillion in FY18 to Rs 42.8 trillion at the end of the third quarter of FY20. These were 86% of GDP in FY18, increasing to 104.3% in FY19 but dropping to 98.2% at the end of the third quarter of FY20. Government domestic debt increased from Rs 16.4 trillion in FY18 to Rs 22.5 trillion. External debt increased from Rs 11 trillion in FY18 to Rs 16.7 trillion at the end of the third quarter in FY20. Interestingly, external debt increased 42.7% in rupee terms between FY18 and FY19. Depreciation of the Pakistani Rupee was a major reason for the inflated amount in rupee terms. The increase in gross domestic debt in dollar terms between FY18 and FY19 was 11.7%. The increase in the principal amount of external debt serviced between FY18 and FY19 was 96.2%. Total debts and liabilities servicing increased to 56.9% in FY19 as Pakistan paid Rs 3.1 trillion in FY19 compared to Rs 2 trillion in FY18.

On the other hand, a significant decrease in the current account deficit was reported between the end of FY18 and FY20, mainly driven by the fall in imports and an improvement in the inflow of remittances. The current account deficit decreased from $19.2 billion in FY18 to $3 billion in FY20. It was at $13.4 billion in FY19, decreasing by $10.5 billion in FY20. The trade deficit in goods and services decreased to $9.8 billion from $32.6 billion in FY19 to $22.8 billion in FY20. Remittances increased from $21.7 billion in FY19 to $23.1 billion in FY20.

Direct investment in Pakistan increased from $1.36 billion in FY19 to $2.6 billion in FY20. This increase was mainly in the form of equity and investment fund shares. More importantly, exports have increased by more than 25% in July 2020 over the amount reported in June 2020 as it touched $2 billion in July 2020. Exports reported a 6% year-on-year growth in July 2020. The reason for this surge could be two-pronged. Pakistan is likely to have benefitted due to early lifting of the lockdown and revival of economic activities. Further, as the lockdown in Pakistan was not as extensive as that imposed in India and other developing countries struggling with COVID-19, it is likely to have provided some advantage to Pakistani exporters as they are better able to meet their obligations to the buyers. Both, India and Bangladesh reported a larger plunge in exports than Pakistan over the past few months.

The Institute of Business Administration (IBA), Karachi recently published a report on policy responses during the COVID-19 pandemic. It stated that the recovery in the export trend is highly dependent on the economic conditions in major trading partners and that an extended period of a global slowdown can have a devastating impact on exports from Pakistan. Further, the State Bank of Pakistan has expressed doubts over the prediction of GDP growing at 2.1 percent this fiscal year. It emphasizes on the need to rejuvenate overall demand. It is predicted that India’s GDP may shrink by 3% this fiscal year. Bangladesh may report a GDP growth rate of less than 2%, which would be one of the lowest in its history.

In essence, the spread and the associated health risks related to COVID-19 in Pakistan were not as severe as those reported in other countries. This not only meant that more lives have been saved than expected but also the loss in livelihoods is likely to be less severe than what was earlier predicted by pundits. The economy has started to recover at a faster rate in Pakistan than in other developing countries. If the recent downward trend in the indicators of COVID-19 continues, it will be a major sigh of relief for economic policymakers in Pakistan.